How
much should you open your mini account with?
A
lesson in Money Management
New traders usually
ask, "What is the minimum to open an account?" This is true
in forex as well as in all other financial markets in the world. It
is natural to ask this question. After all, many feel that if they open
an account with less, they don't have to worry as much. This can't be
further from the truth.
Even though all
customers that open a mini account with $250 or more get our unique
forex trading ebook, we
recommend that clients try to deposit as close to $1000 as they could
in their mini accounts. "Why," you ask? Read on
to find out more.
Example:
The Size of your Mini Account Matters
You can actually
make trading safer and maximize your potential trading currencies by
depositing more in your mini account rather than less! Let us explain
why this is so. Let's say that you are opening a mini forex account
to day trade currencies. Let's assume that even though you have the
flexibility to deposit more than $250 in your account, you only deposit
$250 because it is the specified "minimum." Since a stop loss
from 15 to 20 pips is typically used for day trading in the forex market,
let's assume that you will set your stop orders at 15 pips away from
your entry price (if you don't understand any of this, read through
the basics in the forex education
section of this site). Furthermore, let's say that you will take a position
consisting of 3 mini lots (as you will learn from the forex
e-book, dealing in multiple lots gives you more flexibility in your
trading).
Having laid out
the trading scenario, let's get into a trade. Assuming that you get
a buy signal for EUR/USD based on your trading strategy, you buy three
mini lots and set a sell stop (exit point) 15 pips away from the price
you bought. Now, stop for a moment.
Let's think about
this. Since each pip for a mini lot in the EUR/USD currency pair is
worth US$1, a 15-pip stop represents a potential loss of $15. Since
the position is made up of 3 lots, the total potential loss on this
trade is 3 x 15 = $45. Now a $45 loss doesn't seem like a lot, but you
have to look at the overall picture. As a percentage of your account
size, $45 is almost 20%! That means that if you have a few losing trades
in a row, your account disappears.
Now, let's look
at the above scenario with a $1000 mini account. If you deposit $1000
in your mini account, $45 equals less than 5% of the entire account
value. That means that you will have to lose over 20 times in a row
to wipe out your account (NOTE: If you lose in 20 straight trades,
you probably need to look for another hobby because you are definitely
doing something wrong!). Our practical trading e-book explains why
you don't want to risk more than 5% on any given trade. Consequently,
by having a $1000 forex mini account (instead of an account with $250)
you have a much higher probability of succeeding in the long run if
you follow proper money management techniques.
How about
if I just set a smaller stop loss?
New mini forex traders
typically ask the question above. At first, it might sound like a logical
thing to do. Why not just set smaller stop losses. The problem is that
due to the natural volatility of the market, you cannot really set a
stop loss much smaller than the one used in the example above. If you
do, you will more than likely get stopped out of the market a lot and
your losses will multiply rather quickly - so this technique does not
work.
In conclusion, even
though you can open a mini account with just $250 and receive our very
practical e-book, we strongly suggest that you open your account with
$1,000 or more if possible. This would be the ideal situation.
If you are a trader
that cannot open an account with $1,000, we suggest that you get as
close to the $1,000 figure as you can and read the trading e-book completely.
To
open a mini account online, click
here.
To
return to the mini account section, click here.
IMPORTANT:
When you open AND fund your account, you will receive your account
number via email. Once you have your account number, click
here to fill out our request form and receive your mini e-book.
If you want to ask
us any questions about setting up a mini account, please call us (305-600-4651) or email us (support@forex-day-trading.com).
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